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How to Negotiate a Commercial Lease

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How to Negotiate a Commercial Lease

One of your biggest business expenses is rent. But, a lot of entrepreneurs cannot properly negotiate their commercial real estate for lease. As a result, they have to deal with major hidden costs. Even worse, some businesses do without a lease when renting their space monthly. Before signing a lease, you must take your time to review it. Also, without a lease, your landlord can kick you out with little notice and you will lose the value of any renovations you have made. Below are some tips when negotiating a commercial lease:

Assess your Business Needs

Do a bit of homework before you negotiate a lease. List the current and expected future space needs of your company and determine your budget and preferred location. If you are not sure about near-term needs, think about a shorter lease.

Hire an Attorney

You need to involve a commercial lawyer in your lease negotiations. Always get a lawyer’s opinion. Look for a reputable attorney who understands leases. Some businesses use a family or general attorney and end up signing a lease with unexpected costs. Remember that leases are complex and mistakes can be made if you are not careful.

Know your Costs

Review the incidentals your landlord is asking you to pay for to ensure the total cost suits your budget. Any future increase in base rent and incidentals must also be clearly specified. Do not hesitate to ask for changes if necessary.

Understand your Lease Options

The lease covers costs that can greatly vary based on the kind of lease. You will pay a single amount to your landlord that will cover base rent and all incidentals. Typically, these include property tax, utilities, maintenance, insurance, repairs, and common area expenses. In a modified gross lease, you and your landlord share some combination of incidental costs. Also, in a net lease, you will often pay for the base rent plus property taxes, utilities, and insurance.

Consider Market Rates

Check market rents in your desired neighborhood and compare them with the asking rent of the landlord. Consult with a commercial realtor to get up-to-date market lease rates. You can use this information to negotiate a lower rent if the asking number is high.

Collect Information about the Property

Check the tenant mix of the building and neighbors to ensure their compatibility with your business. Determine what the traffic in the building is like. Will you have enough parking space if the majority of tenants use the space? If some tenants have much more traffic than you do, you might be able to negotiate payments for lower common areas.